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The lower quartile house price surged to $616,500 in Auckland last month but declined in many regions

The lower quartile house price surged to $616,500 in Auckland last month but declined in many regions

Buying a first home became more affordable in most parts of the country last month thanks to a fall in lower quartile selling prices in most regions, but significantly less affordable in Auckland, where the lower quartile price surged to a record high, according to the First Home Buyer's Affordability Report.

The report shows that housing remains affordable for typical first home buyers in all regions of the country except Auckland, where affordability worsened considerably due to rapidly rising prices.

In Auckland the REINZ's lower quartile selling price was $616,500 in May, compared to $584,500 in April and $502,100 in May last year.

The report estimates that would have pushed up the mortgage repayments on a lower quartile-priced Auckland property purchased by typical first home buyers to $821.83 a week, which would eat up 54% of their after tax pay, up from 50.8% in April, 45.8% in May last year and 38.1% in May 2013, when the same property would still have been considered affordable.

Auckland CentralAuckland North ShoreAuckland SouthAuckland WestWellington CityHutt ValleyPoriruaKapiti CoastWhangareiNew ZealandHamiltonTaurangaRotoruaNapierHastingsGisborneNew PlymouthPalmerston NorthWanganuiNelsonChristchurchTimaruWairarapaQueenstownDunedinInvercargill

That means housing is likely to be becoming severely unaffordable for first home buyers in Auckland because as well as mortgage payments, they will be faced with other property-related expenses such as rates, insurance and maintenance costs, which could severely impact their finances.

And it could leave them facing even more severe financial difficulties when interest rates eventually start to rise again, which they inevitably will do at some stage.

What 'affordable' is

The report considers housing to be affordable when mortgage payments are less than 40% of take home pay.

The income measures used in the report for typical first home buyers are the regional pay figures for working couples aged 25-29, according to the LEEDS (Linked employer-employee data survey) data from Statistics NZ.

Mortgage repayments are calculated using the average of the major banks two year fixed rates on a 25 year mortgage.

By those measures, housing is affordable for first home buyers in every region of the country except Auckland.

The cheapest place for first home buyers remains Southland where the lower quartile price was just $139,400 in May, followed by Manawatu/Wanganui at $163,100, Otago $198,300, Hawkes Bay $216,700, Taranaki $234,500, Northland $258,200, Waikato/Bay of Plenty $265,500, Nelson/Marlborough $295,700, Wellington $325,900. Canterbury $342,000, Central Otago-Lakes $388,900 and Auckland $616,500 (See table below for lower quartile price movements in all regions over the last two years).

That means the mortgage on a lower quartile priced home in Southland would take up just 11.2% of a typical first home buying couple's take home pay, while in the most expensive region outside of Auckland - Central Otago-Lakes - the mortgage on a lower quartile priced home would eat up 35.4% of their after tax income.

In the Wellington region a lower quartile home would take up 26% of a first home buying couple's take home pay and in Canterbury it would be 28.4%.

Last month the REINZ's lower quartile selling price declined in seven regions (Northland, Hawkes Bay, Manawatu/Whanganui, Nelson/Marlborough, Canterbury, Central Otago/Lakes, Otago) and rose in five (Auckland, Waikato/Bay Of Plenty, Taranaki, Wellington, Southland).

The Auckland problem child

But Auckland is the problem child because the lower quartile selling price in the region has risen by $170,100 (38.2%) in the two years since May 2013.

By comparison, the lower quartile selling price in the Wellington region has risen by $12,900 (4.1%) over the same period and in Canterbury it has risen by $41,000 (13.6%).

The strong price rises for properties in Auckland doesn't just mean that first home buyers could have trouble making the mortgage payments on a lower quartile priced house, they would also likely struggle to save a reasonable deposit.

The First Home Buyer's Affordability Report also calculates how much of a deposit a first home buying couple would have saved if they squirreled away 20% of their after-tax pay for four years and earned interest on this at the average 90 day deposit rate.

By that measure, the first home buying couple in Auckland would have saved $67,554 after four years, which would only be an 11% deposit for a home at the region's lower quartile May selling price of $616,500.

This means the first home buying couple would have to compete for the limited supply of home loans banks are able to make available to people with less than a 20% deposit, which also means they would probably not be eligible for the special interest rate deals that many banks offer and may end paying a higher interest rate than borrowers with a larger deposit.

By comparison, a typical first home buying couple in Wellington (where pay rates are slightly higher than Auckland) would have saved $69,179 after four years, which would provide a 21.2% deposit on a home at the region's lower quartile price of $325,900.

In Canterbury, the typical first home buyers would have saved $65,722 after four years which would provide a 19.2% deposit on a home at the region's lower quartile price of $342,000.

Buying a first home has never been easy, but in every region except Auckland, getting on to the first rung of the property ladder should be manageable for aspiring first home buyers provided they are working and develop a regular savings habit.

However in Auckland, that first home is becoming increasingly out of reach for many.

And with immigration fuelled population growth in Auckland outpacing the supply of new homes and prices continuing to rise significantly faster than incomes, the outlook for first home buyers in the region is becoming increasingly difficult.

REINZ Lower Quartile Selling Prices

  May 2013 May 2014 May 2015
Northland $246,700 $252,100 $258,200
Auckland $446,400 $502,100 $616,500
Waikato/Bay of Plenty $245,300 $253,700 $265,500
Hawkes Bay $211,700 $214,400 $216,700
Manawatu/Whanganui $184,600 $172,000 $163,100
Taranaki $238,400 $221,700 $234,500
Wellington $313,000 $323,000 $325,900
Nelson/Marlborough $295,500 $284,800 $295,700
Canterbury/Westland $301,000 $335,800 $342,000
Central Otago/Lakes $358,200 $360,400 $388,900
Otago $182,200 $188,400 $198,300
Southland $145,000 $132,300 $139,400
All NZ $275,000 $287,000 $305,000


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Unrelated comment removed, Ed. Please see our commenting policy here -

Why is 9.9% rates rises in Auckland unrelated to this story?

The editor needs to make room for discussing the cause of the Auckland boom!!


Of course that immigration causes infrastructure issues which in turns causes rates to rise. So in reality it is the same issue - it is just that everyone including journalists and editors are closing their eyes to the underlying problems.

In fact most are rubbing their hands in glee at increasing house prices in some kind of state of euphoria much like a share market investor in 1987 NZ, or 1999 Nasdaq, or 2007 Dow Jones - all blind to the impending disaster...

BTW, in 2008/9 I repeatedly stated on this website that prices would not crash, just slow down a little and then take of again within 5 years. What happened?? They took off and then some. This time things are a little different, Auckland has got completely out of whack with reality and there is now a real risk of something never really seen before in NZ except in the small towns and regions when industry dried up.

Frazz, because your comment made no link between the two, it was a general gripe. The place for those is on 90@9, Top 10, or What Happened Today. On stories on particular topics we ask for comments to be related to the topics. If you wish to make a link between rates and house prices here, please go ahead.

Because the 9.9% is the rise in the Auckland Council revenue collected and not what home owners will necessarily be paying. The Council rates revenue rise is strongly influenced by growth in the number of new properties that are being rated.

Individual property owners will most likely see a rise, some due to the rebalancing of the burden based on valuations, some by the [much smaller] rise in the tax ("Rates") rise. But it is superficial and wrong to imply the rise in rates home owners will pay will be +9.9%. The confusion is not being helped by NZ Herald headlines. Don't fall for it. At least most readers of are savvy enough to understand the difference.

Yes I am sure they will not get a surprise when the rates bill is opened, but what would I know.
Albert-Eden 14.9%
•Devonport-Takapuna 7.9%
•Henderson-Massey 11.6%
•Franklin 4.4%
•Great Barrier Island -13%
•Hibiscus and Bays 6.3%
•Howick 9.9%
•Kaipatiki 16.1%
•Mangere-Otahuhu 16.9%
•Manurewa 9.5%
•Maungakiekie-Tamaki 14.9%
•Orakei 8.5%
•Otara-Papateoteo 12.2%
•Papakura 3.3%
•Puketapapa 14.5%
•Rodney -1.4%
•Upper Harbour 9.9%
•Waiheke -2.8%
•Waitakere Ranges 5.4%
•Waitemata 7.7%
•Whau 15.7%

People want their house to go up in value infinitely, but they don't want to have to pay for accompanying rate rises.

There is no stamp duty, property tax or capital gains tax so its still advantage to those that own property.

That's the thing about greed, people can't see it until its too late.

When you compare Auckland's increase to other centres on the tables and then look at the first home buyer affordability, it becomes patently clear that there is a serious imbalance going on.

Why does Auckland need to grow in population so much? Clearly it is over stretched in all respects - housing, infrastructure, physical space...

It's all very well thinking that it is the greatest city in the world and prices will rise forever, but that is not the reality.

The reality is that when the crunch comes it will hurt like heck.

Two years ago, a price crash from $446k would have had little psychological impact, now a crash from $616k or higher when it peaks, is going to make the economy catatonic - and who knows for how long?

The only rational explanation for the boom is Chinese hot money and immigration.

The government has had the opportunity to solve both those problems but instead closed both eyes and block both ears and then repeat loudly "there is problem, THERE IS NO PROBLEM".

We need action before our economy is lined up to collapse Irish style. (Interesting on Homes under the Hammer last week an Irish house previously sold for 140k was resold for 37k and not in particularly bad shape either...) do we restrict all the kiwis coming back? I don't think we can.
The simple reality is that councils have been asleep at the wheel for more than 10 years in Auckland, and could have sorted out zoning years ago. They have been useless.
I support the govt sacking Auckland council and taking over

i wouldnt let this goverment take over a garage sale, they would invite everyone in and then say we only have one item to sale no worries you can have for half price wink wink nudge nudge remember me in a few years when i come looking for a favour

This govt is the very last group who should take over ANYTHING. Incompetece personified.

For every kiwi returning home there are plenty of non-kiwis we don't need to let in.

Kiwis coming home? Oh yeah. Most kiwis I know that live overseas look back at New Zealand as some greedy, misinformed, conservative backwater. They're buying houses and having babies in Berlin/London now - they know NZ isn't what it used to be.

Although many Aucklanders face rate rises, 22.5 per cent of Aucklanders, or 102,000 households, will gets a rates decrease

The nail-biting decision to endorse the 10-year, $60 billion budget averted a financial crisis which would have required stock exchanges in NZ, Singapore and Switzerland being informed, a likely downgrade of the council's credit rating and the possibility of the Government replacing the council with commissioners.

After more than five hours of intense debate and warnings from the Auditor-General, Lyn Provost, and senior officers, the council voted 10-9 to adopt the budget.

So the A-G got in on the action too? That certainly is interesting and precedent setting. Amalgamation has been an absolute tragedy for the region - they have become TBTF and with it, no longer masters of their own destiny.

yes and we were sold on bigger is best as more efficient better buying power so cheaper costs LOL, they forgot to mention less acountability to the local consitutients. The bigger any government or local department becomes the worse they are they become to bogged down in forms to get anything done

Why would anyone who has a choice, be now looking for their first home in Auckland? If you are there for the professional high paying work - move to Wellington, If you are there for the warm weather - move to Tauranga.

These income to purchase price numbers are madness, the longer the trend continues, the more the FOMO builds and the bigger the hurt for us all when it turns to custard.

Prick the bubble now I say.

Improves elsewhere??

In Tauranga it worsens. In fact the asking price for houses in Tauranga is totally unrelated with the income in the area.

The overpriced market is not only in Auckland.

By the way, I don't see many cashed up Chinese buying in Tauranga. But I see plenty of mum and dad investors.

Auckland Rates. Perhaps they should double. After about 50 years of underinvestment you have a lot of catchup to pay for. To live there there are costs that need to be met. There are a multitude of things. Transport infrastructure. Basic services to new areas. The list goes on.
Really, if the place is to be a serious city, you need to be 20 years ahead on the infrastructure, not 20 years behind.

i predict that young professionals (ie Accountants, Lawyers, Engineers would prefer to move to Wellington, they have higher average salaries and lower property prices. its a no brainer. The cost to income ratio of Auckland housing is ridiculous.

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Days to the General Election: 35
See Party Policies here. Party Lists here.